FINANCING THE DEVELOPMENT
of AWQAF PROPERTY
Monzer Kahf
Paper prepared for the Seminar on Development of Awqaf organized
by IRTI, Kuala Lumpur, Malaysia, March 2-4, 1998
FINANCING THE DEVELOPMENT
of AWQAF PROPERTY
Introduction
Islamic Awqaf properties make up a considerable proportion of
the societal wealth in several Muslim countries. The idea of Waqf
itself is also a principle that entails generous applications in the
direction of developing the non-profit, non-governmental sector and
increasing the quantity of welfare services that aim at improving the
socio-economic welfare of a society. This provides a strong justification
for a detailed theoretical study of the potentiality of the application of
Awqaf and the development of their properties in Muslim countries
and communities. It, in fact, encourages studying the potentiality of
the idea even in all non-Muslim economies.
In other words, the development of Awqaf properties is an issue
that is worth studying both from the point of view of the existing
Awqaf and from the point of view of encouraging the establishment of
new Awqaf. This paper is an attempt to discover new techniques for
financing the development of Awqaf properties, especially, the
investment Awqaf by resorting to the private sector’s sources in a
manner that is compatible with the Islamic Shari’ah. For this purpose,
the paper is divided into four chapters.
In chapter one, we will study the salient feature that
characterize the Islamic investment Awqaf and the importance of their
development. Hence, chapter I will define the Waqf from a Fiqhi angle
as well as from an economic angle. It will present the developmental
content of the idea of Waqf whether it is of the philanthropic type or
family type as well as whether it is a direct Waqf or an investment
one. We will also study the significance of Waqf development with
regard to social and economic growth. Thus, we will discuss the
1
cumulative nature of Islamic Waqf and its effect on other social
welfare activities as it represents a major backbone of the third sector,
the sector that is non governmental, non private and non profit. In
this chapter, we will also discuss the necessary conditions and
prerequisites for the development of investment Awqaf properties and
for the encouragement of establishing new Awqaf.
Chapter two will be devoted to studying the traditional modes of
financing Awqaf properties, especially, those mentioned by Fuqaha
and other social scientists in the Islamic cultural heritage. Hence, five
modes of financing will be studied: (1) increasing the principal of the
Waqf by adding newly established Awqaf; (2) exchange the Waqf
property by another with higher usufruct; (3) borrowing on the Waqf
with repayment from the Waqf net revenues; (4) Al Hukr (long lease
with a large advance payment); and (5) lease with dual payment. And
we will analyze the condition of success and failure of each of these
modes from a theoretical point of view as well as from the applicability
point of view.
In chapter three, we will discuss new ideas and innovations in
certain modes of financing, amenable for utilization in financing the
development of Awqaf properties in the contemporary Muslim
societies, on institutional basis, i.e., financing that can be made
available from Islamic banks and other institutional financing
sources. These modes include Murabahah to the purchase orderer,
Istisna’ with another parallel Istisna’, leasing and Mudharabah by the
Nazer with funds financed from a financial institution. These are
forms of financing in which the manager of Waqf (Nazer) retains all
managerial authority over the whole Waqf project after development
and the financing institution remains dormant with regard to
management. We will also study two more modes of financing in
which the management is transferred to the financier/ developer.
These two modes are: output sharing and Al Hukr. And we will also
2
discuss a seventh mode in which the management can be in the
hands of either of Waqf Nazer or the financier/developer.
Chapter four will discuss modes of financing of Awqaf
properties by resorting to public soliciting of funds. We will propose
five financial instruments, suitable for Waqf financing;
and study
their main features and mode of operation. These five instruments are
output shares, partnership shares, lease bonds, Hukr shares and
Muqaradah bonds.
Finally, we will put our conclusions and summary in a few
paragraphs at the end of the paper.
3
Chapter One
THE SALIENT FEATURES OF ISLAMIC AWQAF AND
THEIR SOCIETAL ROLE
In this chapter, we will discuss the definition of Waqf from the
point of view of Fiqh and economics, and we will indicate that its
economic definition points to its developmental investment content.
We will also see that this cumulative nature remains with Waqf
regardless of the objective for which it is assigned. We will also
discuss a few necessary prerequisites for the revivification of the Waqf
role in socio-economic development.
I.
Definition of Waqf and Its Developmental Content
From Shari’ah point of view, Waqf may be defined as holding a
Maal (an asset) and preventing its consumption for the purpose of
repeatedly extracting its usufruct for the benefit of an objective
representing
righteousness/philanthropy.
Hence,
Waqf
is
a
continuously usufruct-giving asset as long as its principal is
preserved. Preservation of principal may result from its own nature as
in land or from arrangements and conditions prescribed by the Waqf
founder.
This definition covers perpetual Waqf and the Waqf that
remains as long as its asset lasts, i.e., for the beneficial life of the
assets. This is something that is agreed upon among four Schools of
Fiqh. The definition also covers the kind of Waqf that is made
temporary by the will and conditions of its founder which is discussed
and approved in the Maliki School only.
Also, the above mentioned definition covers several new forms of
Waqf that were not discussed in the classical literature, such as the
4
Waqf of financial rights and Waqf of usufruct, since both financial
rights, such as publication right of a manuscript, and usufruct, such
as usufruct of a rented asset, are covered by the definition of the word
Maal (asset) according to the majority of Fuqaha and as expressly
mentioned in the contemporary collective Fatawa, especially, those of
the OIC Fiqh Academy.1 Furthermore, this definition emphasizes the
idea of abstention from consumption in order to keep the asset
available for repeated extraction of usufruct, and did not make a
reference to ownership, so that we avoid the well known difference of
opinion among Fuqaha with regard to who owns a Waqf property. It
should be noted that the idea of repeated extraction of usufruct does
not impose restriction on beneficiaries, so that this definition covers
the family Waqf and the possibility of utilizing the Waqf by the Waqf
founder.
The above definition of Waqf also allows inclusion of all kinds of
Maal (asset) under Waqf, so that land and construction can be made
Waqf for religious purposes, such as a mosque for prayers; for
philanthropic purposes, such as a hospital, an orphanage or a school.
Land and construction may also be made Waqf for agricultural
utilization or for any other productive utilization in industry and
urban areas provided that the net revenues are exclusively devoted for
nourishing philanthropy/righteousness causes, such as spending on
light and heat of a mosque, on feeding the poor and needy or on the
current expenses of a hospital, a school or an orphanage.
It goes without saying that philanthropic services are numerous
and there are always new ones as societies grow and develop. Shortly
after the death of the Prophet (pbuh) during the period of ‘Umar, the
Companions invented a kind of philanthropy that is directed toward
The Review of the OIC Islamic Fiqh Academy, Vol.5, 1409H, and al Khaled, Vol.1,
chapter on Definition of Awqaf.
1
5
family members and offsprings, and they started establishing Awqaf,
that included land, buildings and palm trees, for the objective of
distributing their net revenues to the family and offsprings of the
founder. This Waqf has the same characteristic as other philanthropic
Waqf in a sense that the assets themselves are preserved from being
disposed of, and the usufructs are distributed in a repeated manner.
This comes, in a way as, one of the applications of a concept that is
well rooted in Shari’ah: that providing for sustenance and welfare of
one’s ownself, family members, neighbors and friends, is an
expression of righteousness and an act of philanthropy that deserves
reward from Allah. This concept is expressed by many sayings of the
Prophet (pbuh) as it is well known in the references on Hadith.
The Economic Definition of Waqf
If one attempts to reformulate the definition of Waqf for
expressing its economic content, the Waqf could be said as: diverting
funds (and other resources) from consumption and investing them in
productive assets that provide either usufruct or revenues for future
consumption by individuals or groups of individuals.
Waqf is then an operation that combines the act of saving with
the act of investment together. It consists of taking certain resources
off consumption and simultaneously putting them in the form of
productive assets that increase the accumulation of capital in the
economy for the purpose of increasing future output of services and
incomes. Services provided by Waqf may take the form of a patient
bed space in a hospital building, a prayer space in a mosque or a
student space in a school building. By the same token, the Waqf may
produce output to be sold to the public in order to generate net
income for the beneficiaries of the Waqf.
6
The establishment of an Islamic Waqf is very close to the
establishment of a business corporation whose life span is unlimited.
It is an action that involves investment for the future and
accumulation of productive wealth that benefits future generations.2
Hence, the Islamic Waqf is a developmental process by virtue of its
definition as it involves the accumulation of productive wealth
through present investment that favors future generations since the
Waqf gives its beneficiaries future fruits free of any charge. The Waqf
implies a sacrifice of a present consumption opportunity for the
benevolent purpose for providing income and services for the future
generations.
From the point of view of the nature of the Waqf output or
fruits, Waqf assets may be classified in two categories: Assets that
produce consumable services to be utilized by the beneficiaries, such
as schools, hospitals and orphanages. The purpose of this kind of
Waqf may be a general philanthropy, such as educational schools or a
private philanthropy, such as a guest house for the descendents of the
founder. In both cases, this kind of Waqf provides a service to the
beneficiaries and we will call it a direct Waqf.
The second category of Waqf assets is that which is intended for
investment. It produces marketable goods and services to be sold in
order to generate a net income which will be distributed to the
beneficiaries. Here again the beneficiary may be a general charity,
such as a mosque or a scientific research center, or a private
philanthropy consisting of the descendents of the founder. This kind
of Waqf shall be called investment Waqf.
2 Let us remember that this understanding of Waqf makes common stocks, units in
mutual and investment funds and investment deposits in Islamic banks, some of the
most relevant contemporary forms of assets that can be made into Waqf as they best
represent its economic content. These assets are the contemporary counterpart of
the kinds of assets made into Waqf by the Companions, such as Ruma well by
7
It should be noted that the Islamic definition of Waqf makes its
assets cumulative, in application to the principle of perpetuity in
Waqf. It means that a Waqf asset may not be sold or disposed of in
any form, i.e., a Waqf asset remains in the Waqf domain perpetually
and any new Waqf will be added to that domain, implying that Awqaf
assets are only liable to increase. They are not permitted to decline
since it is illegal to consume the assets of Waqf or to leave them idle
by any action of neglect or transgression. Hence, the Waqf is not only
an investment, but it is a cumulative and ever increasing investment.
This is supported by the historical development in the Muslim lands
that ended up making a considerable proportion of cultivable lands
and metropolitan real estates in the domain of Waqf to the extent that
Awqaf properties were estimated at over one third of the agricultural
land in several countries including Turkey, Morocco, Egypt and Syria.
This is in addition to the Urban Awqaf that represent a sizable portion
of total Urban real estates.
Finally, one may mention that the economic and demographic
developments in most Muslim countries and communities during the
Twentieth Century led to a tremendous increase in the value of Awqaf
assets because of several reasons whose study falls outside the limit
of this paper. This increase created a tremendous opportunity for the
development of these assets in a way, non-precedented in our
economic history.
II.
The Importance of Waqf for Socioeconomic Development
The very idea of Waqf itself consists of creating and developing a
third sector distinct from the profit-motivated private sector and the
authority-based public sector, and charging this third sector with the
Othman, the orchard of Khaibar by ‘Umar and the other Awqaf of the Companions
that consisted of arable land, trees and usable buildings.
8
responsibility of performing a group of tasks whose nature make them
better achieved if they are made outside the profit motives and the
practice of authority. This kind of tasks falls in the arena of
righteousness, goodness, kindness, mercy and benevolence. The idea
of Waqf indicates that the Islamic system recognizes the importance of
the non-profit sector in social and economic development and provides
the necessary legal and institutional protection for this sector to
function away from the self-interest motives and the power of the
government. It also provides this sector with resources that make it a
major player in the social and economic life of Muslims and charges it
with functions that are desired to be put outside the traditional
private and public sectors of the economy.
Historically, the Islamic society assigned education, health,
social welfare and environmental welfare to this third sector.
Furthermore, the third sector provided defense services and public
utilities in many instances.
Consequently, we have seen the Muslim society depending
essentially on Awqaf for the provision of education at all levels,
cultural services, such as libraries and lecturing, etc., scientific
research in all material and religious sciences and health care
including the provision of physicians’ services, hospital services and
medicines. For instance, it is reported that the Island of Sicily, under
the Islamic rule had 300 elementary schools. All of them are built by
Awqaf; and all of them are provided with Waqf revenues for payment
of teachers and school supplies.3
The number of high schools and
universities in each of the major Islamic cities, such as Al Quds,
Damascus, Baghdad, Cairo and Nisapur was in the tense and
hundreds. There were universities specialized in different areas of
Abdul Malik Ahmed Sayed, “Role of Awqaf in Islamic History”, in Hassan Abdullah
Al Amin ed., Idarat Wa Tathmir Mumtalakat Al Awqaf, IRTI, Jeddah, 1989, page 231.
3
9
sciences, such as medicine, chemistry and Islamic studies. These
included universities like Al Qurawiyin in Fez, Al Azhar in Cairo, Al
Nizamiyah in Al Mustansiriya in Baghdad.4 The Awqaf estates used to
provide these universities with building in addition to teaching
materials, scientific books, salaries for teachers and stipends for
students. Some universities even have students dormitories for both
single and married students.5
Scientific libraries were also built by Awqaf and supplied with
tense and hundreds of thousands of volumes. Payment for libraries’
employees, supervisors and script writers were provided from the huge
revenues of orchards and rentable buildings made Awqaf for the
benefit of these libraries.6 The importance of libraries and books
reached a level that forced many Fuqaha who usually do not consider
Waqf applicable to mobile assets to make an exception with regard to
copies of the Qur’an and scientific books, so there is no disagreement
among Fuqaha on the permissibility of making these two kinds of
mobile assets into Waqf.7 In order to facilitate lending books to
scholars and researchers, they ruled that it is not permissible to ask
book borrowers to provide a collateral even if the Waqf founder made
such a provision in the Waqf document. It is thus ruled that such a
condition by the founder is invalid.8 The Islamic history also witnessed
specialized Awqaf for scientific research in medicine, pharmacology
and other sciences.9
Ibid, pp. 238-240.
Ibid.
6 It is said that fanatics burnt more than one million volumes upon the fall of
Granada in 1492, and the crusaders destroyed about three million books in the
libraries of Tripoli, Lebanon, when they occupied the city in the Sixth Century of
Hijra, ibid, p. 279.
7 Zarqa, p. 48.
8 Zarqa, p. 122.
9 Abdul Malik, pp.288-290.
4
5
10
The provision of Awqaf for education is probably responsible for
the usually common independence mentality we notice in scholars
that kept them away from Rulers. The thing which turned Muslim
scholars into popular leaders and outspoken representatives of the
society in any confrontation with the authority. It also contributed to
reducing the socioeconomic differences by offering education to those
who can take it on merit basis rather than on ability to pay for
educational services. Hence, the economically poor classes had always
equal educational opportunities that allow them to climb faster on the
socioeconomic ladder.10
Health services were also provided by Awqaf
throughout the
Muslim lands. Hospitals and their equipment, salaries to physicians
and their subordinates, schools of medicines and pharmacy and
stipends to students were all provided on regular basis by the Awqaf.
Special Awqaf were established for specialized medical schools for
research in chemistry and for payment for food and medicine for
hospital patients.11 There was even some Awqaf for patients
entertainment including people, especially hired for hinting to patients
that their illness is mild and curable in a short time.12
Obviously, the Awqaf also provided mosque for worshippers in
addition to monasteries for those who devote themselves to worship,
graveyards and funeral facilities.
The area of socio welfare, environment protection and animal
care was an area in which the Awqaf had tremendous contributions.
The first Waqf on which the Fuqaha established most of their rulings
is the Waqf of ‘Umar in Khaibar and it was a Waqf for social
Abdul Malik, pp.249-258.
Abdul Malik, pp.280-287.
12 Yusuf Al Qaradawi, Qitab Al Wa Al Hayat, Muassassat Al Risalah, Beirut,
Lebanon.
10
11
11
assistance to the poor and needy and wayfarers. Supporting the poor
has always been a priority among the Awqaf objective to the extent
that it has become known in Shari’ah that if a founder did not
mention an objective for her/his Waqf, supporting the poor and needy
must be considered the de facto objective. In the support of poor and
needy, the history of Awqaf went into specific areas. We find, for
instance, several Awqaf for orphans, for widows, for helping poor men
and woman with the cost and requirements of marriage, special Awqaf
for home furnishing for the poor and needy, for nursing mothers, for
battered wives and for people traveling on the roads.13
Additionally, the Awqaf provided for helping in liberating slaves,
in caring for young children and in providing drinking water for
villages. It also provided for animal and bird care, for repairing river
banks and for establishment of frontiers fortification.14
III.
Necessary Prerequisites for the Revivification of
Islamic Awqaf
In appreciation of the important role, the institution of Awqaf
could play in social and economic development, some Muslim
countries gave special attention to the development of the Awqaf
properties and the revivification of their functions and ability to
provide those important services they used to carry out in the past.
Hence, the 1990 act of Awqaf in Algeria stipulated that all the Awqaf
properties that were diverted to other usages must be returned to
Awqaf and devoted to promoting the charitable objectives assigned for
them by the founder. The existing assets of Awqaf in most Muslim
countries represent a huge amount of social wealth that can be
developed to produce a lot of social services, especially, with the
Ibid and Abdul Malik.
Monzer Kahf, in the Encyclopedia of Modern Islamic World, Oxford Press, 1995,
New York, Vol.4.
13
14
12
increase in their capital value as a result of the economic and
demographic changes.
However, there are several prerequisites that must be fulfilled if
the Islamic Awqaf are going to assume an important role in the
development of our economies. The most important prerequisites can
be put forward in the following points:
1)
There is a need for a new legal framework that provides
clear
definition
of
Awqaf
and
that
organizes
this
institution, defines its functions and objectives whether
general
philanthropic
or
private
philanthropic
and
regulates its social and economic role. The law should
define the responsibilities and authorities of Awqaf
managers and their relationships with the government on
the one hand and private and public beneficiaries of
Awqaf on the other hand. We also need a legal framework
that provides sufficient legal protection for the Awqaf
properties.
2)
There is also a need for a law that provides for the
repossession of all Awqaf properties that were diverted to
other public and/or private persons and to review the old
records of Awqaf in order to re-establish the right of
Awqaf on many lost real estates.
3)
There is also a need for a complete revision of the
management of Awqaf, especially, the investment kind of
Waqf, in order to fulfill two objectives: (1) to increase the
efficiency and productivity of the Awqaf properties and (2)
to minimize fraudulous practices and corruption by the
Awqaf managers (Nazers). There is also a need to provide
a new style of management that suits the Awqaf
13
institution, keeping in mind that their properties are not
owned by those who manage them, and to provide
sufficient checks and balances on the Awqaf managers
without allowing the Awqaf management to fall in the lap
of the government.
4)
We need a clear definition of the role of Awqaf in social
and economic development and a recognition of the
relevance and importance of family Awqaf and their role
in economic growth; and we need to reinstate provisions
that protect and organize the family Awqaf in particular
and promote the idea of establishing new Awqaf in
general.
5)
There is also a need for providing technical, managerial
and financing support to the Awqaf management to help
it increase the productivity of Awqaf properties, and we
need to redefine the roles of the ministries of Awqaf by
making them agents of support and catalysts of help in
the development of Awqaf rather than governmental
managers of Awqaf properties.
6)
There is also a need to revise our classical Fiqh on Awqaf
in order to accommodate many new forms of potential
Waqf that do not have any precedents in the classical
Fiqh, especially, in the area of Waqf of usufruct and Waqf
of non-physical properties (abstract properties) and we
need also an expansion of the concept of temporary Waqf.
7)
There is also a need for a master plan in each Muslim
country to re-deploy the Awqaf properties in such a way
that maximizes their benefits and services.
14
Chapter two
TRADITIONAL MODES OF FINANCING AWQAF PROPERTIES
Sailing through the classical works on Fiqh of Awqaf, one may
easily notice that what was occupying the minds of Fuqaha is the
issue of exploitation of Awqaf properties, i.e., putting them to proper
use as they were left and/or prescribed by the founder. It is commonly
expected that a founder would leave a Awqaf property in a productive
state, capable of producing a flow of services or net revenues for which
it was established. The idea of increasing the Awqaf principal and
enlarging its productive capacity was a remote idea, especially, that it
does not usually fall within the framework put forward by the Waqf
founder.
Consequently, we find discussions of financing needs of Waqf in
case of its decay, demolition or idleness and we find a discussion of
substituting it for a new property in case its location ceases to be
suitable for producing the intended services. This is emphasized by
the Fiqhi discussion of the ‘end’ of a Waqf without thinking of any
effort to renew or replace it, especially, in case of Waqf of mobile
things, such as horses, livestock and books.
In other words, the idea of putting aside certain proportion of
the Waqf revenues for reconstructing a mobile Waqf or for expanding
the capital of a fixed asset Waqf was not discussed in the classical
Fiqh.15
15 For instance, one finds, in the Fiqhi discussions on Waqf, cases of ending the
Waqf of carpets, books, horses and slaves by the mere end of the usable life of the
Waqf property without any discussion of a procedure for replacement.
15
The classical books of Fiqh discuss five modes of financing the
reconstruction of a Waqf property : borrowing, Hukr (long lease with a
large advance lump sum), Al Ijaratain (lease with dual payment),
adding a new Waqf and substitution (exchange). Among these five
modes, one only adding a new Waqf, creates an increment in the Waqf
capital and its productive capacity. The other four modes are
essentially meant for operational financing or for brining an idled
Waqf property back into productive use. We will, therefore, start with
the mode of adding a new Waqf to an old one and move on to discuss
the other four modes:
1) Financing Waqf by Creating a New Waqf to be
Added to the Old One
The earliest example of creating a new Waqf to supplement an
old one may be the drinking-water Waqf made by ‘Uthman during the
time of Prophet (pbuh). Motivated by the Prophet’s call for buying the
well of Ruma and making it a Waqf for drinking, ‘Uthman was able to
buy one half of that well as the former owner did not accept to sell it
all together. In a short while, the former owner accepted an offer from
‘Uthman to buy the other half, which he did and added to the previous
Waqf of one half of the well. This kind of Waqf is very much practiced,
especially, in expanding mosques. It is known, for instance, that the
mosque of the Prophet (pbuh) in Madinah was enlarged during the
time of ‘Umar, ‘Uthman and later in the Umayad and Abbassit
periods. Each enlargement represents adding a new Waqf to the old
one. Other examples of adding new Waqf is seen in providing and
older Waqf with new facilities, such as water, electricity and heating
systems.
The Islamic history witnessed this kind of addition of new
Awqaf to older ones in mosques, schools, hospitals, orphanages,
monasteries, universities, grave yards, etc. Furthermore, we find
16
examples in the Fiqh books of adding a Waqf of construction and trees
made by the renter of a Waqf land in which case they consider the
validity of this Waqf because it is stabilized by being erected or
planted on land that was already a Waqf property.16 The Waqf of new
books and new copies of the Qur’an as added to older ones in libraries
and mosques as a common practice all over the Muslim land. We find
in the Fiqhi books a discussion of possible differences in beneficiaries
between the old Waqf and the new one, which is added to it, and the
Fuqaha say that the revenues should be distributed in accordance
with the proportion of the revenues of each Waqf.17
2) Borrowing for Financing Operational Needs of Waqf
It is common to find a discussion on the borrowing by the Nazer
of a Waqf in order to pay for its operational cost and the cost of
brining an idle Waqf back in function. The usual condition for such
borrowing is a prior permission by the supervising Judge. We find, for
instance, talk about borrowing for buying seeds and fertilizers and for
hiring necessary labor. We also find mentioning of loans made for
reconstruction of a Waqf property that was decayed or burnt down.
A hasty reader may interpret the borrowing with prior
permission for reconstruction of a Waqf property as borrowing for
development in a sense of increasing the capital of the Waqf, since the
word reconstruction (‘imarah) came general or unqualified, but if one
closely follows the Fiqhi texts on borrowing and links them with the
texts on the distribution of the net revenues of the Waqf, especially,
when there are excess revenues that exceed the spending needs of the
objectives of the Waqf, one would recognize that what is meant by
reconstruction of a Waqf is a rebuilding Waqf that was made idle
16
17
Zarqa, page 48.
Ibid.
17
because of a catastrophe or because of a natural decay, rather than
reconstruction in a sense of growth and creating incremental capital
for the Waqf.
3) Substituting a Waqf
The mode of substitution simply means an exchange of a Waqf
property for another that provides at least similar services/income
without any change in the provisions laid by the founder. Hence, in
principle, substitution does not imply any increment in the Waqf
property under normal market conditions. Consequently, substitution
is not a mode of financing. Yet, because of the unique characteristics
of Waqf, especially, that a Waqf cannot be sold, its substitution may
sometimes end up increasing the flow of services it provides. The
classical example of this is a school building in a sparsely populated
area that can be exchanged with a school building in a densely
populated area if the new owner of the former Wqaf property happens
to have an alternate usage for it.
Furthermore, partial substitution has been emphasized as a
means of financing, especially, in case of urban lands whereby the
price of part of the property may be sufficient to construct a building
on the remaining land and therefore increase its revenues.
Economically
speaking,
substitution
whether
complete
or
partial, does not increase the capital value of the Waqf property
although it may increase its revenues because of the possibility of
idleness of the property before substitution. Furthermore, substitution
is made possible only because of discovering new uses of the Waqf
property that were not available before, especially, in the case of
metropolitan land that can be used for high rises construction as
compared to older short buildings. An interesting example of
substitution caused by the presence of new uses of the Waqf property
18
is
a
Waqf
hand-written
manuscripts
that
have
acquired
an
architectural value and that can be substituted for printed copies that
may have equal or better benefit for potential readers. Hence, creating
a surplus that can be used for adding more books for reading, i.e.,
increasing the services to the Waqf beneficiaries by substituting a
manuscript for printed books.
The mode of substitution essentially allows for providing
liquidity that is needed for the operational activities of a Waqf. It also
increases the services of the Waqf in certain cases, especially, when a
new use of the Waqf property exists because of technical and/or
demographic changes.
4) The Mode of Hukr (long lease with large advance lump sum)
This mode is invented by Fuqaha in order to go around the
prohibition of selling a Waqf. Instead of selling the Waqf property the
Nazer can sell a right for a long lease at a nominal periodical rent.
This right is sold for a large lump sum paid in advance. The purchaser
of the right of long lease can then develop the property using own
resources and at own risks as long as she/he pays the periodical rent
to the Nazer. The term Hukr means monopoly or exclusivity. This
exclusivity right may be for a long period that usually goes beyond the
normal natural life span of human beings or it may be permanent. It
is one of the examples of the financial rights that can be marketed,
i.e., sold, inherited, given as a gift, bequest in a last will, etc.
From the point of view of the Waqf Management (Nazer), it
virtually obtains the value of the Waqf property that is given in Hukr
in the form of a lump sum, which must be used for the Waqf
objectives, such as reconstructing a decayed mosque by selling an
exclusivity right on an agricultural land that was a Waqf for spending
19
on the mosque. Since the sale of the exclusivity right is not considered
a sale of the Waqf itself, the management is not required to put the
price obtained in a similar property as in the case of substitution. This
approach of mobilizing liquid funds needed for the Waqf preserves the
right of the Waqf beneficiary for getting a periodical rent which usually
made very nominal for the period of exclusivity.
The Hukr mode of financing may be abused if the price of
exclusivity is used for operational expenses of the beneficiary cause,
as the Hukr substantially reduces future revenues of the Waqf.
However, if the lump sum price of exclusivity is used for buying a new
productive asset as a Waqf, the flow of revenues remains as it used to
be or it may improve. In other words, the mode itself is neutral while
the application may sometimes give negative effects from the point of
view of beneficiaries/objectives. This mode is known in certain
countries under the form of leasehold in which a property is given for
99 years or so against payment of a lump sum price, and subsequent
sales of the property will be effected for the remaining period. This is
compared with freehold in which there is no time limit on the
ownership of the property, and its sale is done free of any such limit.
If the Hukr mode is utilized under normal market conditions
and if the price of the exclusivity is utilized in a way that preserves the
spirit of perpetuity in Waqf, this mode should be considered neutral
and applicable for securing liquidity that is necessary for the
construction of a Waqf property. Hence, the criteria of acceptability of
this mode do not depend on the amount of periodical rent, how small
it may be, but on the fairness of the practice and the final utilization
of the lump sum generated by selling of the exclusivity right.18
5) The Mode of Ijaratain (Lease with Dual Payment)
18
See, Anas Zarqa, page 194.
20
This is exercised by creating a long lease in which the rent
consists of two parts, one big lump sum advanced for the
reconstruction of the Waqf property and the second part is a small
periodical payment paid, say, annually for the period of the lease. This
mode is very similar to the Hukr except that in Ijaratain the advanced
price must be used for the reconstruction of the leased property itself.
It is obvious that in this contract the two parties observed that the
Waqf property is rented after reconstruction in accordance with the
specification determined in the contract.
Some writers consider this mode of financing even worse than
the mode of Hukr because it contains more sacrifices on the part of
Waqf property than in Hukr,19 especially, since this mode requires
that
the
immediate
cash
payment
should
be
used
for
the
reconstruction while in the mode of Hukr it may be used for any other
purpose outside the rented Waqf property, while the periodical rental
payment is usually small in both cases.
This kind of argument may be valid if we assume that the
periodical rental is equal in both modes. Obviously, under any fair
market conditions the periodical payment cannot be equal in both
modes because of the cost of the added condition of using the cash
amount for the reconstruction of the property. Therefore, there should
be no reason to consider either of them worse or better from the point
of view of fairness as long as they are practical under fair market
conditions.
Lastly, a special case of this mode is called Al Mursad in which
the advanced lump sum is not legally considered part of the rent but
an advance payment by the lessee to be credited toward the agreed
upon periodical rent applicable after reconstruction.
19
Anas Zarqa, op.sit., page 195.
21
Chapter Three
NEW INSTITUTIONAL MODES OF FINANCING THE
DEVELOPMENT OF AWQAF
It is natural that new modes of financing investments in Awqaf
must be derived from the same Fiqh on Waqf and on financing. This is
made easier by the tremendous growth of Fiqh on financial
transactions that came about over the last two decades along with the
rise of Islamic banking, keeping in mind that a Waqf property must
not be disposed of except in the form of exchange as discussed before.
Hence, contemporary modes of financing must be based on the same
three well known principles of Islamic financing : the principle of
sharing, the principle of sale and the principle of leasing.
In this chapter, we will discuss the modes of financing that are
suitable for institutional provision of resources, and we will sort them
on the basis of which party is given the right to whole project. There
are four modes of financing that allow the Waqf Nazer to keep an
exclusive right over the management. These are Murabahah, Istisna’,
Ijarah and Mudharabah. To these four modes, we will add the mode of
ownership sharing (Sharikat Al Milk) which allows the two contractors
to share management or to assign it to either party; and we will also
have two more modes that give the management of the project to the
financier, namely, the mode of output sharing and the mode of Hukr
or long lease.
1) Murabahah Mode of Financing
The Murabahah financing has become well known in the
literature. Its application on Awqaf requires the Waqf Nazer to take
the functions of an entrepreneur who manages the investment process
and buys necessary equipment and materials through a Murabahah
22
contract to the purchase orderer, while the provision of financing
comes from an Islamic bank. The management of Waqf becomes a
debtor to the banking institution for the cost of the material
purchased plus the financing markup which represents the price of
the second sale contract in the Murabahah to the purchase orderer.
This debt will be paid from the returns of the expanded Awqaf
property.
2) Istisna’ Mode
The mode of Istisna’ allows the management of Waqf to order
the required expansion in the Waqf property (e.g. construction) from
the financing institution by means of a Istisna’ contract. The bank
then enters into another contract with a contractor to provide the
same to the order of the bank that will be delivered on the bank’s
behalf to the Awqaf management. According to the OIC Islamic Fiqh
Academy Resolution, Istisna’ is a Shari’ah compatible contract in
which payment may be deferred by mutual agreement.
Istisna’ mode of financing also creates a debt on the Waqf
management that should be settled from the returns of the expanded
Waqf property and the financier will not have a right to interfere in the
management of the same.
3) Ijarah Mode
This mode of financing is a special application of Ijarah in which
the Waqf Nazer keeps full control over the management of the project.
Its modus operandi goes as follows:
The Nazer issues a permit, that is valid for a given number of
years only, to the institutional financier allowing it to erect a building
on the Waqf land. Then the Nazer leases the building for the same
23
period during which it is owned by the financier, and uses it for the
benefit of the Waqf objective, being a hospital or a school or an
investment property such as rental offices or apartments. The Nazer
runs the management and pays the periodical rent to the financier.
The amount of rent is determined so that it compensates the financier
for the principal and desired return. At the end of the permit period,
the financier would have obtained its principal and desired profit and
since the permit lapses, the financier would have no accessibility to
the Waqf property.
This kind of Ijarah is obviously a special case of Ijarah that ends
with the lessee owning the construction by virtue of being the owner of
the land on which it is built. The permit may also be permanent or as
long as the project lasts, e.g., for the economic life of the project, the
Nazer uses part of the income of the project if it is an investment Waqf
for payment of the rent to the financier.
4) Mudharabah by the Nazer with the Financier
The mode of Mudharabah can be used by the Nazer of the Waqf
assuming the role of entrepreneur (Mudhareb) and receiving liquid
funds from the financing institution to construct a building on the
Waqf property or to drill an oil well if it were an oil producing Waqf
land. The management will exclusively be in the hands of the Nazer
and the rate of profit sharing will be set in a way that compensates the
Waqf for the effort of its management as well as the use of its land.
5) Ownership Sharing Mode
Ownership mode of financing may be utilized when two parties
happen to independently and individually own two things related to
each other such as if each one of them owns one half of a lot of
agricultural land without having a formal partnership agreement. The
24
ownership sharing is not a partnership mode since in partnership
both parties commonly own the property of the partnership in
accordance with their shares in its principal, while in ownership
sharing we are faced with two distinct properties each one is owned
completely and individually by an independent party, and their
relationship is determined in Fiqh by what is called Sharikat Al Milk in
contrast to Sharikat Al Aqd that applies to partnership.
The operational format of ownership sharing is as follows:
The Nazer permits the financing institution to construct a
building on the Waqf land (or to dig an oil well and install extraction
equipment). Each party owns independently and separately its own
property and they agree on dividing the output between themselves.
The Fiqh of Sharikat Al Milk implies that each party is
responsible for managing its own property. Hence, in this mode of
financing the Nazer and the financing institution may agree on
sharing the management or assigning it to either party. Obviously, in
determining the ratio of distributing the output, the managing party
may be assigned extra percentage points as a compensation for its
effort.
In this mode of financing, the management compensation may
be set of a given amount of Dollars or as a proportion of the output,
and the owners may also agree on dividing gross or net income
between themselves in proportion to their ownership. Furthermore,
since the financing institution usually desires to get out of its
ownership at a certain future point of time, the parties may agree on
selling the financier’s property to the Waqf and utilizing part of the
Waqf share of the output as payments for its price.
25
6) Output Sharing Mode
Output sharing mode is a contract that allows one party to
provide fixed asset, such as land to the other and divide the gross
return (output) between the two parties on the basis of an agreed
upon ratio. This mode of financing is based on Muzara’ in which the
landlord provides the land (and may be machinery) to the farmer. In
output sharing, land and management cannot be provided by the
same party.
In output sharing mode of finance, the Waqf provides the land
and other fixed assets if they are owned by the Waqf, and the
financing institution provides operational expenses and management.
The financing institution may also provide part or all of the machinery
as long as the land is provided by the non-managing party in
accordance with the conditions of Muzara’a. This mode is thus
suitable for financing institutions that desire to take charge of the
projects management, while the Waqf Nazer takes a position of a
dormant partner.20 This makes it one of the two modes in which the
management will exclusively be in the hands of the financing
institution.
7) Long Lease and Hukr Modes
The final mode of institutional financing is one in which the
management is also kept in the hands of the financing institution that
leases the Waqf property for a long period of time. The financier takes
charge of construction and management and pays periodical rent to
the Waqf Nazer.
Monzer Kahf, Mofhum Al Tamwil Fi Al Islam and Rafic Al Misri, Al Mudharabah Bi
Al Usul Al Thabitah.
20
26
In the Hukr sub-mode, a provision would be added in the
contract according to which the financing institution gives a cash
lump sum payment in addition to periodical rents. However, under
fair market conditions, the total present value of the return to the
Waqf in Hukr and in long lease should be approximately same.
27
Chapter Four
NEW MODES OF FINANCING AWQAF DEVELOPMENT BY
RESORTING TO PUBLIC ISSUING
It is apparent that when the management of Awqaf resorts to
public issuing it must have already taken the choice of keeping the
management of the project in the hands of the Nazer since it is the
Waqf itself that takes charge of issuing shares and bonds to the
public. Preservation of management in the hand of the Waqf Nazer
can be done by selecting the financing mode whose nature is to give
the Nazer of the Waqf such a right or by soliciting an agency
agreement, within the framework of issuing prospectus itself, that
assigns the Nazer as the Manager of the project.
It may be necessary at this stage to emphasize that according to
Shari’ah
the
basis
for
negotiation
of
any
securities
is
their
representation of physical assets and financial rights only.21 In other
words,
negotiability
of
securities
relies
on
the
securities’
representation of physical assets and financial rights. If a security
represents debts and/or money, it cannot be sold except for a price
that is equal to its nominal face value. Moreover, a security that
represents only money needs further conditions for the validity of its
sale from Shari’ah point of view. Hence, in addition to pricing at the
Interestingly in Shari’ah physical assets and financial rights are also the basis for
earning a return out of a property that is an owner of physical assets and/or
financial rights (such as a publication right) is entitled to all returns resulting from
them. The immediate implication of this principle is that owning a debt and/or cash
money does not entitle a person to any return because both of them, by nature, do
not grow.
This principle must be distinct from the Fiqhi rule that reads Al Ghumn Bi Al
Ghurm “return is by risk”. This rule does not mean that the reason of the return is
the risk. It only means that return is always associated with risk, and the risk here
is one of the characteristic of owning a physical asset, because owning a physical
asset is risky as it is exposed to natural and market caused risks.
21
28
face value, the actual exchange of such a security and its counterpart
must be done immediately at the time of contract.
We have seen in the last chapter that Murabahah and Istisna’
both are based on indebtedness. Hence, a security that represents a
debt resulting from Murabahah and/or Istisna’ cannot be sold except
at its face value. This rules out these two modes of financing from
being suitable for public offering since no secondary market can be set
for their negotiation. In other words, if we want to solicit financing
resources from the public by offering them negotiable securities, we
must avoid all these forms of financing that end up creating debts on
the fund user. This leaves us with the modes based on the principle of
sharing and modes based on the principle of leasing.
It should be noted that in leasing the physical assets leased
remain in the ownership of the lessor, while the lease contract as a
sale of usufruct creates a debt in the amount of agreed upon rent in
exchange for another debt that is making the usufruct available to the
lessee. This debt of rent is the financing return to the owner of a
leased asset. This is a special kind of debt related to future usufruct,
and in Fiqh it is permissible that a debt related to future usufructs
may be transferred at the time of transferring the ownership of the
leased asset.22 In other words, the Ijarah contract is transferable along
with the transfer of ownership of the leased asset. This makes lease
contract a suitable vehicle for a mode of financing that is amenable to
securitization, especially, that a lease contract is characterized by
having a prefixed return.
In this chapter, we will suggest five new types of securities that
can be issued to the pubic for financing the development of Awqaf
For the Fiqhi argument of this point, one may refer to Monzer Kahf, Sanadat Al
Ijarah.
22
29
properties while offering the owners a market determined return.
These five securities are : output shares, partnership stocks, Ijarah
bonds, Hukr shares and Muqaradah bonds. These securities can be
issued by the Waqf manager who receives the face value of the
security along with a contract appointing the Waqf Nazer as an agent
to execute, exploit and manage the desired project on behalf of its
owners (stocks, bonds and shares holders). The relationship between
owner of these securities and the Waqf management begin as an
agency relationship but once the project is built, it turns into a
Mudharabah, Musharakah or Ijarah relationship as we will discuss in
the respective characteristics of each of these securities.
1) Output Shares
Output shares are negotiable securities that represent equal
shares in the principal of a productive project established on a Waqf
land by using the cash proceeds obtained from the sale of these
shares.
Output shares entitle their owners to a share of the gross
output of the project. For instance, if the project is a hospital building
established on a Waqf land and rented to, say, the Ministry of Health
or a group of physicians, a share entitles its owner to certain
percentage of the gross contracted rental while the Waqf, as
represented by its Nazer, takes responsibility of all managerial
activities including maintenance and insurance. Hence, the share of
the Waqf of the total gross return consists, in fact, of three parts: (1) a
return for the land provided to the project by the Waqf, (2) a
compensation for the management, and (3) a compensation for the
current expenses and maintenance of the project.
The Shari’ah foundation of these output shares is derived from
Mudharabah with productive fixed asset which is based on Muzara’a
30
in which the managing party takes responsibility of current expenses
and maintenance, while the other party provides the productive fixed
asset.
Waqf management may desire to own the building at a certain
future point of time. This can be fulfilled by buying the output shares
from the market. The prospectus may also stipulate certain form of
gradual amortization of the shares at the market price at the time of
amortization or at the accounting book price that can be determined
according to commonly known accounting rules without falling into
the pitfall of binding mutual promises which is objected to by OIC
Fiqh Academy.
A special case of output shares may also be formulated so that
their owners turn them into a Waqf after exploiting them for a certain
period of time during which they collect a return that is rewarding
enough to cover both the principal and a desired profit. If turning a
share into a Waqf with an exception of its benefits for the desired
period, is effected in the prospectus, i.e., at the time of its issuance,
an output share would then represent a usufruct owned by the
shareholder over the excepted period. As such, these securities would
be based on usufruct and remain negotiable.
The procedures of issuing output shares may be explained in
the following points:
1)
A permit from the Waqf Nazer of shareholders to
construct specific construction on the Waqf land.
2)
An
appeal
from
the
Waqf
Nazer
as
an
entrepreneur/Mudharib to the public to buy output
shares at a given price and conditions as follows:
31
a)
The existence of a permit from the Waqf to the
share holders to erect the specific construction with
all necessary conditions, specifications, etc.
b)
An agency contract given to the Waqf management
to utilize resources thus mobilized from the sale of
output shares to establish the said project.
c)
Appointing the Waqf as a Mudhareb to hold the
fixed asset of the project after completion for
management and investment.
d)
An agreement on the ratio of distribution of gross
output
of
the
project
after
completion
of
construction and beginning of return giving period,
between the owners of the construction, as Rab al
Maal, and the Waqf as Mudhareb, according to an
agreed upon ratio. This distribution does not specify
any income to the land since the return on the Waqf
land should be implicitly included in the share of
the Mudhareb.
3)
The Nazer takes charge of the construction by virtue of
the power of attorney on behalf of the owners of output
shares.
4)
After completion of construction, the Nazer receives it and
starts investing and managing it as a Mudhareb.
5)
The Nazer actually distributes gross returns according to
the agreement.
Output shares are characterized of being simple to calculate
from the accounting point of view because there is no need for
evaluating the fixed asset and worrying about their amortization each
time returns are distributed. Shares entitle their holders to a
percentage of gross income in contrast to net income that requires
calculation
of
capital
consumption,
32
maintenance,
operational
expenses, etc. Hence, this mode of resource mobilization removes the
possibility of creating a conflict with regard to the evaluation of the
fixed asset given to the Mudhareb. It is thus easier to implement as
one only distributes the gross return and doesn’t worry about cost
calculation. This arrangement is also simple from the point of view of
maintenance and insurance. The insurance that relates to the
construction itself and its ability to produce the expected usufruct
belongs to the owners (shareholders). The Mudhareb would be
responsible to pay this cost item on their behalf and deduct it from
their share of gross return. Insurance premiums are usually
predetermined so that output shares would enjoy the characteristics
of neat and subtle returns.
At the same time, the return to the output shareholders
depends on the market values of the project that is determined by the
income the Mudhareb would be able to generate out it. In other words,
output shares would expose their holders to the market risk to which
any other producer for the market is exposed. This kind of risk can be
minimized by selecting easily marketable projects, especially, when
user of the final product already exists and can be contracted as in
the case of building a hospital for rent or constructing a dam on a
Waqf land and selling its product to the local government.
2) Partnership Stocks
These are of the same as common stocks. The Waqf Nazer may
issue common stocks representing the value of construction intended
to be made on a Waqf land, keeping the management of the building
in the hands of the Waqf. A management fee may be charged in the
form of a given amount or in proportion to returns or distributed
dividends. Implicit in the management fee would be a compensation
for the use of the Waqf land. The mechanism of using these
partnership shares is similar to the output shares, i.e., it includes a
33
power of attorney given by the shareholders to the Nazer to establish
the building and a permit from the Waqf to the shareholders to erect a
building on the Waqf land.
In
partnership
shares,
net
returns
are
distributable
as
dividends to shareholders (compared with output shares that
distribute a proportion of gross income). This implies that all running
expenses, maintenance, provision for capital consumption, etc., would
be deducted from gross income before distribution.
Partnership shares may be permanent without any amortization
or any transfer of ownership of the building to the Waqf. They may
also end at a certain point of time in the future by transferring the
building to the Waqf either through purchase of partnership shares in
the market, gradual amortization at book value or by transferring the
building into a Waqf as we have seen in output shares, i.e., after
distributing dividends that make up for the total of the principal
advanced and desired return together.
3) Lease (Ijarah) Bonds
Ijarah bonds are securities representing equal shares in a leased
property. In the case of Awqaf, the Nazer issues Ijarah bonds and sells
them to the public at a price equal to the cost of construction divided
by the number of bonds issued.
The relationship between bondholders and the Waqf includes a
permission from the Waqf to the bondholders to build the desired
construction on the Waqf land and an agency agreement from the
bondholders to the Waqf to execute the construction and to rent the
building to the Waqf itself. In other words, Ijarah bonds include a
lease agreement between the bond holders and the Waqf that becomes
effective once the building stands usable. This lease agreement would
34
determine amount of rent, intervals of payment and period of the
lease.
The total rent of the whole leasing period may be distributed on
any number of periodical payments in such a way that dividends of
Ijarah bonds may become due from, say, the first quarter after issuing
a bond even though the construction may be still under way or may
have not started at all, since in leasing, rent may be paid in advance.
This is in contrast with output shares, partnership shares and
Muqaradah bonds as the later three are based on the project’s return
that cannot be known before the end of the accounting period.
Ijarah bonds become negotiable after transforming the majority
of their value received by the Nazer into physical assets and financial
rights. This means that negotiability of Ijarah bonds is not effected
immediately after their sale and they may need an announcement
from the Waqf management to determine the beginning of their
exchange in a secondary market.
Ijarah bonds are more similar to treasury bonds than perhaps
any other kind of Shari’ah-compatible security, since they have
predetermined dividends. Hence, their prices in the market would
basically be determined by the difference between their income and
their opportunity cost, which is determined by the prevailing rate of
return in the economy.
Lastly, Ijarah bonds may be issued on permanent basis if their
arrangement includes proper provisions for capital consumption and
maintenance of the property they represent in addition to a lease
renewability clause. They may also be issued for a fixed period of time
determined by the productive life of the asset they represent or by an
agreement included in the bonds prospectus itself for transferring the
35
property into a Waqf or for ownership transfer of the building to the
Waqf.
4) Hukr Shares
In their characteristic, Hukr shares stand between lease bonds
and partnership shares. The similarity between Hukr shares and these
two kinds of securities is that all of them represent equal shares in the
ownership of buildings and/or fixtures constructed on the Waqf land.
Like
partnership
shares,
the
return
of
Hukr
shares
is
not
predetermined as it depends on the net return of the project. On the
other hand, as in lease bonds, owners of Hukr shares are connected
with the Waqf by a long lease whose subject is the Waqf land rather
than the building as in Ijarah bonds. The exploitation of the building,
which is owned by the Hukr shareholders, is executed by the Waqf on
the basis of agency.
Hukr
shares,
thus,
represent
ownership
in
a
building
established on a land rented from the Waqf. The land rent is part of
the cost of the Hukr project. The Hukr shareholders appoint the Waqf
as their agent in fulfilling the construction, exploiting the building and
managing it for whatever use it is assigned to. The net income of this
investment is distributed to the Hukr shareholders by the project
manager, i.e., the Nazer.
Hukr shareholders may be permanent if the Hukr agreement
between the Waqf and the shareholders gives them a permanent right
of leasing the land. It may also be for a fixed period at the end of
which the construction is turned to the Waqf with or without
compensation
depending
on
the
contract
conditions
arrangement of return distribution and capital repayment.
36
and
the
5) Muqaradah Bonds
Muqaradah bonds are based on the idea of Muqaradah contract
similar to the investment deposit contract in Islamic banks, but with
the addition of securitization by representing these deposits in
securities of equal face value. In Muqaradah bonds, the Waqf as
Mudhareb, accepts cash deposits against issuance of Muqaradah
bonds given to Rab al Maal.
The Waqf management utilizes the proceeds for establishing the
investment project agreed upon with the bond holders on the Waqf
land and it distributes the net return periodically between the
Mudhareb and Rab Al Maal until the end of the Mudharabah
agreement. At that point, the Waqf management would be required to
return the principal cash to the bond holders and retrieve the bonds
they had. Muqaradah bonds may also come to an end by either
transferring the property into a Waqf or buying it from the market by
the Waqf management.
Assuming that the calculation of net profit at the end of each
financial period is accurate and correct in such a way that it reflects
all current and capital gains, the book value (the real value) of a
Muqaradah bond, just after calculating and distributing the periodical
profit, must equal its face value. The same thing is practiced in the
calculation of investment deposits in Islamic banks whereby it is
known that the Islamic banks keep the face value of the deposits after
distributing their periodical profit.
The principle of accepting presumed liquidation as a fair
representation of actual liquidation, which is usually mentioned in the
classical Fiqh of Mudharabah, have become widespread and wellestablished among the Shari’ah Boards of all Islamic banks, provided
that presumed liquidation is effected in accordance with accepted
37
accounting and auditing rules and regulations. The same principle
can also be applied to Muqaradah bonds, i.e., provided that the
evaluation of the project, its assets and liabilities and its income and
expenditures is done in accordance with accepted and fair accounting
rules. Thus, presumed liquidation must also represent actual
liquidation with regard to Mudharabah bonds as it does with regard to
investment deposits in Islamic banks. Implicity in that is the rule that
profit and loss must reflect any change in the evaluation of the
principal, i.e., not only current results but also capital gains and
losses.
From the above, one may conclude that the face value of
Muqaradah bonds should be equal to its true value just after
calculation and distribution of profit and loss at the end of each
period. The immediate implications is that a Muqaradah bond may
alternatively be purchased from the market at a market price or
amortized at its face value as long as they both are equal. This is
similar to investment deposits in Islamic banks that are normally
returned at their face value at the end of the investment project or
period for which they are deposited.
The preceding argument becomes easy to implement if the
developmental project in which the proceeds of the sale of Muqaradah
bonds are invested has a variety of assets that include physical assets
and cash money. In that case, as usually done in Islamic banks, it is
possible at the time of presumed liquidation that some investors may
withdraw and part of the cash money available be assigned to them to
refund the principal of their deposits/Muqaradah bonds.
On the other hand, one must remember that there is a
multiplicity of factors that affect the price of Muqaradah bonds in the
financial market. Some of these factors are real and relate to the
financial and economic status of the project and its economic
38
environment. These factors must always be under consideration in
presumed
liquidation
in
all
Mudharabah
contracts
whether
implemented in the form of investment deposits or in the form of
Muqaradah bonds. There are also factors related to expectation,
estimation and personal evaluation. In these factors, people usually
differ. Expectations usually converge to the real factors at the time of
the periodical declaration of the real results of the project. In other
words, the market value of the bond should always tend toward
converging to its face value at the time of calculating and distributing
profits as long as the estimation of the financial position of the project
(presumed liquidation) reflect fairly all the real factors affecting the
project and its economic environment and trends.
39
Summary and Conclusion
In this paper, I have studied some of the few most important
and viable modes of financing that are suitable as contractual vehicles
for providing the financial needs of the development of Waqf properties
in accordance with Shari’ah. We have studied modes that can be
utilized for institutional financing as well as modes suitable for
soliciting financial resources from the public through the issuance of
negotiable securities. It must be noted that all these modes of
financing rely on the profit motive of the financier, i.e., they are modes
of fund investment from the point of view of savers or fund providers.
Since creation of Awqaf is based on philanthropic behavior, the
voluntary nature of Awqaf allows us to invoke contributor’s motives in
financing Awqaf. Why not thinking of their financing on the basis of
the same motives? In this regard, there are two patterns of charitable
financing that can be mentioned to finance the development of Awqaf
properties : (1) creation of a cash Waqf Fund, and (2) establishment of
a bank for temporary Waqf deposits.
Cash Waqf Fund
The idea of a cash Waqf Fund is simple. It is based on adding a
new Waqf to an old one. The new Waqf takes the form of cash that can
be utilized for financing the development of Waqf properties. The Fund
is open for soliciting cash Waqf. Contributors to the Fund give their
cash money for the purpose of financing the development of Awqaf
physical properties, especially, real estates. The management of the
Fund utilizes the cash Waqf for financing the development of Awqaf,
free of charge, except for the cost of administering the loans. Hence,
the cash Waqf is utilized for providing revolving loans for the
development of Awqaf properties; loans that are payable to the Fund,
to be utilized again for financing other Awqaf properties. The
40
resources of the Fund come from cash Waqf contributions solicited
from individuals and institutions including the government, while its
administrative expenditures are covered from the administrative
service charges which are permissible in Shari’ah as long as they
represent the actual cost of administering a loan.
This Fund may also receive special cash Waqf contributions
that are assigned for the development of specific Waqf properties
either as additions to the Waqf intended to be developed, in this case,
the cash would be transformed into a material addition to the Waqf as
building, equipment, furniture, etc., or as special cash Waqf for
development of certain kinds of Waqf property, such as cash Waqf for
financing the development of educational or health institutions, etc.
The idea of creating a cash Waqf has been practiced in the past
and it is well established in the late Hanafi and Maliki literatures. As
mentioned in these two schools of Fiqh, cash Waqf may be either for
lending the money itself and retrieving it from the borrowers to be lent
again to some other users, or it may be utilized on Mudharabah basis
and its profit would then be utilized for a philanthropic objective such
as helping the poor and needy while preserving the principal of the
Mudharabah intact.
Temporary Waqf Deposits
The idea of creating a temporary Waqf deposits Bank is a bit
more complicated. It requires the creation of temporary Waqf of cash
money. There might be people who are willing to help the development
of Awqaf properties with their available financing resources for certain
period of time and they like to retrieve their principal at the end of
that time. It is exactly similar to loans as defined in Shari’ah that is an
act of charity in which the lender sacrifices the benefit of using her
cash during the period of the loan.
41
The bank of temporary Waqf deposits would solicit such kind of
loans from individuals and institutions for the specific purpose of
creating timed deposits to be exclusively utilized for financing the
development of Awqaf.
To these deposits one must add, the deposits of all Awqaf
institutions in the country, i.e., this bank would also act as a bank of
Awqaf whereby the banking transactions of all the Nazers should be
handled through this Waqf bank. If this bank is established and
supervised by the government, some other agencies may also be
asked/forced to bank through the Awqaf bank. This may include the
Ministry of Awqaf and its branches and the Zakah institution and its
branches.
This Waqf bank may also be permitted to hold current accounts
for individuals and institutions so that it can utilize current deposits
as leverage for the creation of means of payment (credit) to be
exclusively utilized for the development of Awqaf properties. In other
words, it may be allowed to exercise its share in the credit creation
like other commercial banks.
Timed deposits held in this bank may be classified into two
categories. Temporary Waqf deposits in which depositors give their
cash as temporary Waqf for certain period of time for the exclusive
utilization in financing the development of Waqf properties, free of cost
except for the service charge as mentioned above. The second category
of timed deposits consists of investment deposits aimed at providing
return to owners but their investment would be exclusive for financing
the development of Awqaf properties by utilizing one of the modes of
profitable financing mentioned in Chapter Three of this paper.
42
It must be noted that the first category of deposits, the
temporary Waqf deposits, represents an act of charity in which the
donor contributes the benefit of her cash money for certain period of
time for the purpose of helping the development of Awqaf properties
on loan basis and the banking process helps mobilizing such funds
from small deposits and channeling them to the Waqf users.
Additionally, the utilization of part of the cumulative current
deposits and the ability to create credit help expanding the potential
resources of
the Awqaf
bank in providing financing for the
development of Awqaf properties. In other words, this bank should be
able to benefit from the seniority right and channeling it toward Awqaf
development financing. Furthermore, such an Awqaf bank may be a
domestic correspondent/agent of international financial institutions
that may be willing to help financing the development of Awqaf
properties.
All guidance comes always from God, the Lord of the worlds.
43
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